Tips for Financing Foreclosed Homes

Foreclosures happen when homeowners have difficulty making their mortgage payments and become significantly delinquent– usually interpreted as 90 days or more late with payments. It stands to reason that they not have the income to make the necessary repairs and upkeep to the property, especially building systems like roofing, plumbing, electrical and heating in good condition.

Consequently, one of the main problems with investing in foreclosed homes has to do with the fact that many simply do not show well because of all of the deferred maintenance and repairs. At some point,  the lender turns off the power and water to the property. In just a short time, many of these foreclosed properties deteriorate into poor condition, which complicate matters when it when comes to financing a purchase.

Bank Owned Homes

“Real Estate Owned” — sometimes called REO properties, denotes foreclose homes that are owned by banks. When a property does not attract willing buyers at a foreclosure auction,  the bank takes title to the home. This scenario usually occur because the borrower owned more on the home than its actual market value and smart real estate investors simply will not take on this type of financial burden. On the lenders balance sheet to property will be listed as “real estate owned.”

Real estate investors are attracted to these “distressed properties” because they may be able to purchase them at a substantial discount. During the height of the foreclosure crisis– when there was a glut of foreclosed homes on the market– it was not uncommon for buyers—owner-occupants and investors to receive 30%, 40% or even 50% off the market value of these properties.

Finding Money for Foreclosures Deals are for our

For many foreclosure homes investors, cash transactions represents the most favorable method of buying properties. Banks are more willing to  give bigger discounts and move the properties off of their book as “non-performing assets. However,  for many investors and owner–occupants (OOs)—man individuals who start  out as OOs and eventually become investors–where you find the money to finance foreclosures will depend on the your personal circumstances as well as the property.

Take for example a home that is in good condition and has the power and water turned on– these places may be eligible for traditional bank financing for both investors and OOs.

Owner-occupants can also take advantage of the federal government’s FHA 203k mortgage program. This financing method allows borrowers to finance and fix up a REO loan with a single loan.

This eliminates the need to find money to purchase a bank owned home that requires renovation, which is nearly impossible and then   get financing for the necessary repairs .Instead, people who qualify can get funding for both –all roll into one monthly payment.

Here is a summary of the advantages of 203 (k) financing:

  • Obtain a loan based on the purchase price and renovation costs.
  • Use the program bank owned homes that will not qualify for traditional financing.
  • Requires a minimum down payment as low as 3.5%.

There are many mortgage lenders approved by HUD to offer 203 (k) loans. Check around to find local lenders and find out the   borrower’s qualifications, such as minimum credit score and other requirements.

Other Tips for Funding Foreclosed Houses

Before you make an offer to purchase, an REO property, you should get pre-approved for financing. Make sure you attach the pre-approval letter along with any offer.

Even if you have cash or other methods of buying foreclosures, always asked the  lender that owns the property if  the institution will be willing offer financing, including any money necessary for repairs.

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